Home Work Module 7
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My course is Accounting for healthcare.
Home Work Module 7
- Assume that a not-for-profit company has $20 million of long-term tax-exempt debt with an interest rate of 6.0%. The organization has $3 million of unrestricted net assets, with an estimated cost of capital of 7.5%, and $9 million in an endowment with an estimated 5.0% return on assets (cost of capital). What is its weighted average cost of capital?
My classmate work.
Assignment 7
Assume that a not-for-profit company has $20 million of long-term tax-exempt debt with an interest rate of 6.0%. The organization has $3 million of unrestricted net assets, with an estimated cost of capital of 7.5%, and $9 million in an endowment with an estimated 5.0% return on assets (cost of capital). What is its weighted average cost of capital?
Calculation formula for WAC = Total Cost / Total Capital
Total Capital Interest Total Cost
Long term debt = 20 million x 6.0% = 1.2
Unrestricted net assets = 3 million x 7.5% = 0.225
Endowment or restricted assets = 9 million x 5.0 % = 0.45
32 million 1.875
Total cost = 1.875
Total Capital = 32 million WAC = 0.05859 = 5.86
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